Workers and management cause demise of Hostess

In better times before the bankruptcy, a worker checks Hostess Twinkies as move through production in their trays prior to cream injection at the Interstate Bakeries Corporation facility April 20, 2005 in Schiller Park, Illinois.
Tim Boyle

Hostess began as Interstate Bakeries Corporation (IBC) in 1930 and over time became the largest wholesale baker and distributor of bakery products in the United States.

But now the company is finished as it has shut down operations and is liquidating its assets after workers rejected a new contract after a January bankruptcy.

At the time, David Kaplan of Fortune pointed out that there are "no black hats or white knights in this tale" because the workers refused to adapt their demands in a competitive marketplace while management failed to turn the company around as investors looked to cash out.

Steven Mufson of the Washington Post summarized the company's fatal problems as "a combination of pension burdens, labor rules, crippling debt from financial engineers and management’s failure to freshen up a stale product line and keep up with consumers’ changing tastes."

Here's how the pioneering company and its workers failed to keep up with the times:

Pension burdens: Mufson notes that the company had 372 collective bargaining agreements with a dozen unions and had roughly $2 billion in unfunded pension liabilities to its various unions' workers, but it brought in a disappointing $2.5 billion in revenue in 2011.

Labor rules: Kaplan noted how Hostess had ludicrous work rules based on labor contracts — including the requirement of separate drivers for deliveries of such goodies as Yankee Doodles and Nature's Pride Nutty Oat — which exacerbated their huge problem of high labor costs.

Crippling debt: Kaplan detailed how over the years labor unions had successfully negotiated generous pensions and health care benefits that increasingly ignored shifts in the marketplace. So once sales began to decline in the 1980s and '90s as consumers found healthier alternatives to snack cakes and white bread, debt started piling up to the tune of about $450 million by the first bankruptcy in 2004.

In 2009, after five years of restructuring, the company's total debt load was nearly $670 million despite winning concessions from the unions and new capital from investors as it became a private entity.

And by the time the company filed bankruptcy in January, it had lost $250 million — including being in the red in 30 of the previous 37 quarters in less than three years.

Stale products: A source told Mufson that even the most popular food brands need reinvention every eight years or so, but the company has been riding on the success of the Twinkie since its inception in 1933. Attempts to re-energize — such as bringing back the original banana-cream Twinkies and publishing "The Twinkies Cookbook" — flopped.

The mess led to the implosion of the company, as CNN Money reports. In September the 7,500 member International Brotherhood of Teamsters accepted a new contract with reduced wages and benefits, but the 5,000 member Bakers' union rejected the deal and eventually went on strike over contract negotiations.

The Teamsters accused the Bakers of pushing Hostess to the brink of liquidation, while the Bakers blamed management and the "Wall Street vulture capitalists in control" for the company's dire condition.

In the end all sides are blaming one another while the iconic company shuts its doors.

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